Coinbase to benefit most as ETH climbs to multi-year high and alt season starts, Bernstein says

Coinbase will be the biggest beneficiary of rising ETH prices as alt season gets underway, according to analysts at research and brokerage firm Bernstein, with the crypto exchange being one of the leading Ethereum-aligned public companies in their view.

ETH has gained 80% since June 5, when stablecoin issuer Circle launched its blockbuster IPO, with investor appetite in the Ethereum ecosystem increasing upon the realization that most stablecoins are issued on the network, the analysts led by Gautam Chhugani noted in a Monday client memo.

On Friday, ETH hit the $4,000 mark for the first time in eight months, and a continued rally over the weekend has taken it to the highest levels since 2021, trading above $4,350 at one point on Monday before correcting. Ethereum's native cryptocurrency is currently trading at $4,186, according to The Block's ETH price page, but remains down around 14% from its all-time high of around $4,878, set in November 2021.

"In crypto lingo, this market structure is called the 'alt rally' i.e. when digital assets other than bitcoin rally stronger relative to bitcoin," Chhugani wrote. "We believe the alt rally has commenced (reflected in recent ETH outperformance) and Coinbase will be the biggest beneficiary, given its long list of 250+ tokens listed and now the long-tail of Base chain tokens integrated in the Coinbase App."

Base chain handles over 9 million transactions daily across various applications, with gas fees settled in ETH, generating Coinbase $75 million in sequencer fees annually, the analysts noted. Coinbase also earns brokerage fees from its integration of Base chain tokens on its exchange platform and the launch of the Base App for crypto transactions, they said.

Coinbase's shares plunged over 15% following its Q2 earnings release last month, prompting the Bernstein analysts to urge investors not to overreact, claiming "Q2 is the quarter that doesn't matter" for the crypto exchange. At the time, they argued that its performance was largely irrelevant given that the broader digital asset market only started recovering in July, with Coinbase's trading volume tracking around 40% higher than the Q2 average that month.

"From a revenue materiality standpoint, a rising ETH followed by several ETH-linked ecosystem tokens leads to a surge in trading volume and fees for Coinbase.," Chhugani said on Monday. "Thus, we expect Q3/Q4 to be strong trading volume quarters, leading to sell-side consensus again scrambling to move up their estimates."

With Coinbase's staking activity — predominantly ETH — accounting for 10% of the firm's total revenue, that should inflect higher alongside a boost in asset prices too, the analysts added. Coinbase also maintains a large ETH treasury of 136,782 ETH ($570 million), they noted.

Participating in ETH's growth story

Other public companies building on ETH also present an investment option amid the rally, Bernstein said. Similar to Coinbase, the analysts expect Robinhood's crypto trading volumes to surge in Q3, with the platform expanding to more than 30 tokens, adding Ethereum staking, and launching Robinhood Chain, a Layer 2 ecosystem for asset tokenization.

Circle itself is another, given that USDC is primarily minted in the Ethereum ecosystem, the analysts said, with over 60% of its supply on the Ethereum base layer and around 10% on Layer 2 chains like Base and Arbitrum. Over the past three months, USDC's supply has grown 7% to over $65 billion, driven by Ethereum's expanding financial ecosystem and demand for USDC in smart contracts and collateral, they added.

Spot Ethereum exchange-traded funds are a further option, Bernstein highlighted, offering exposure by directly holding ETH. BlackRock's proposal to add a staking feature to its iShares Ethereum Trust (ETHA) could generate an ETH-denominated yield of around 2.9% from helping to validate Ethereum transactions, incorporating blockchain economics into the ETF, Chhugani said.

Finally, the rise of Ethereum treasury companies, akin to Michael Saylor and Strategy's pioneering bitcoin accumulation model, presents an additional investment opportunity, in Bernstein's view.

Ethereum treasury companies actively acquire ETH using modest leverage and manage balance sheet risk, also deploying ETH into staking and onchain finance to generate additional income, the analysts said. Unlike ETFs, they adjust strategies based on market cycles and sentiment, but selecting the right manager is key to handling long-tail risks, they warned, without highlighting any firms in particular.

The Bernstein analysts recently argued it's "still early" in the crypto bull cycle, with many of these investment opportunities well-positioned to benefit from rising volumes and mainstream adoption.

Chhugani maintains long positions in various cryptocurrencies. Certain affiliates of Bernstein act as market makers or liquidity providers in the equity securities of Robinhood and Coinbase. Bernstein and its affiliates may receive compensation for investment banking services from Circle.